Question

Fairbain Corporation was newly formed early in 20X1. The following information relates to the full year:

Raw materials purchased (net) $3,000,000 Direct labor costs 2,000,000 Factory overhead 1,500,000 Selling, general & administrative 700,000

80% of the available raw material was transferred into production. 75% of the work in process was completed. 90% of the finished goods were sold. 10% of factory overhead related to depreciation. 20% of SG&A related to depreciation.

(a) How much is in ending inventory for (1) raw materials, (2) work in process, and (3) finished goods?

(b) How much is in (1) cost of goods sold and (2) SG&A expense for the period?

(c) How much of the total depreciation for the period is charged against income during the period?

Answer 1

Solution:

Ending Inventory Balance

(1) Raw Materials = (3000000-2400000) = $600000

Direct Materials
	-
		b)	2400000
a)	3000000
Bal	600000

(2) Work -In-Process = $1100000

Work In Process
a)	2400000	Finished Goods	3300000
b)	2000000	(4400000*75%)
Balance	1100000

(3) Finished Goods = WIP *75% = 4400000*75% = $330000

Finished Goods
		Cost of Goods Sold	2970000
Work In Process	3300000
Balance	330000

2)

Cost of Goods Sold =Finished Goods * 90% = 3300000*90% =  $2970000

Cost of Goods Sold
Finished Goods	2970000
Balance	2970000

SG&A = $700,000

3) Total Depreciation for the period = $290000

Depreciation Expense ($700,000*20%)	140000
Manufacturing Overhead ($1500000*10%)	150000
Accumulated Depreciation		290000

Workings

Journal Entries -FairBan' Corporation
Date	Particulars	Debit	Credit
a)	Direct Materials	3000000
	Accounts Payable		3000000
	(Purchased Raw materials on account)
b)	Work In Process	2400000
	Direct Materials		2400000
	( Materials Requisitioned)
c)	Work in Process	2000000
	Manufacturing Overhead	1350000
	Salaries and Wages Payable		3350000
	(To record Employee Costs & Depreciation )
d)	Selling, G&A	560000
	Accounts Payable		560000
	(To record the Selling and G&A expenses)
e)	Depreciation Expense	140000
	Manufacturing Overhead	150000
	Accumulated Depreciation		290000
	(To Record depreciation expense on factory and selling and administrative expense)
f)	Finished Goods	3300000
	Work in Process		3300000
	(To record completed work )
g)	Cost of Goods sold	2970000
	Finished Inventory		2970000
	(To record cost of goods sold to finished goods inventory)